Properties of the elasticity of a continuous random variable. A special look at its behavior and speed of change

Ernesto J. Veres-Ferrer and Jose M. Pavía

Communications in Statistics - Theory and Methods, 2017, vol. 46, issue 6, 3054-3069

Abstract: Belzunce et al. (1995) define the elasticity for non negative random variables as the reversed proportional failure rate (RPFR). Veres-Ferrer and Pavía (2012, 2014b) interpret it in economic terms, extending its definition to variables that can also take negative values, and briefly present the role of elasticity in characterizing probability distributions. This paper highlights a set of properties demonstrated by elasticity, which shows many similar properties to the reverse hazard function. This paper pays particular attention to studying the increase/decrease and the speed of change of the elasticity function. These are important properties because of the characterizing role of elasticity, which makes it possible to introduce our hypotheses and knowledge about the random process in a more meaningful and intuitive way. As a general rule, it is observed the need for distinguishing between positive and negative areas of the support.

Date: 2017
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DOI: 10.1080/03610926.2015.1053943

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